Russian Financial Crisis

The Russian financial crisis occurred on August 17, 1998, exacerbated by the global recession caused by the Asian financial crisis in 1997. Russia was highly dependent on exports of raw materials, with petroleum, natural gas, metals and timber accounting for more than 80% of its exports. With the drop in global demand, prices of those commodities began to decline. This resulted in an impact on its foreign exchange reserves since Russia had a fixed exchange rate regime during this period of time, where the ruble was only allowed to move within a narrow band. With the speculative attacks caused by the Asian financial crisis along with the decline in global demand, the Central Bank of Russia stepped in to defend the ruble in the markets. Russia was also experiencing fiscal deficits and declining productivity in its economy. Foreign capital was initially attracted to the Russian market due to the high interest rates, which was then used to provide internal loans in the country. The Gosudarstvennoe Kratkosrochnoe Obyazatelstvo (GKO) bond interest rates soared to 150% in an effort to prop up the currency and to stop capital flight. Internally, debt on wages continued to grow and financing for major big budget items were impacted as debt grew. The Chechnya War from several years earlier further compounded these problems. Russia also suffered from a political crisis where the entire government was fired in 1998, causing for investor confidence to be further eroded. On July 13, 1998, a $22.6 billion financial package from the International Monetary Fund and the World Bank was approved. The purpose of the package was to swap maturing GKO short-term bonds into long-term Eurobonds. This was somewhat successful, however, the government did not implement any changes to the ruble’s exchange rate. Debt payments continued to exceed the amount…...

...aftermath of the financial crisis of 2007, there has been a great deal of debate regarding the key underlying causes. For example, when people discuss the collapse of the financial markets, the most frequently mentioned word is subprime mortgagewhich is considered as the culprit of the crisis. Yet, is subprime mortgage the root of the crisis? If it was, then the question would be how this type of financial product, which is only marginal part of the financial market, could cause such a catastrophic crisis. Specifically, systemic risk was developed. Essentially, subprime mortgage is a mere part of superficial reasons of the crisis and was induced by other underlying factors which will be discussed in the essay. Due to the current situation, it is necessary to correct such misunderstandings. According to the statistics issued by the National Bureau of Statistics of China, GDP growth rate of China has dropped from nearly 12 per cent three years ago to a more subdued 7.5 per cent in the second quarter. Despite a year and a half of recession, Euro zone’s GDP rose at an annualised rate of 1.1 per cent in the second quarter, this pickup still leaves GDP across the Euro area 0.7 per cent lower than a year ago (The Economist, 2013). This essay will argue that in order to resolve the current economic problems it is crucial to identify the underlying causes rather than accepting superficial reasons. It will also be argued that there are three key reasons for the crisis:......

...A Case Study of a Currency Crisis: The Russian Default of 1998
Abbigail J. Chiodo and Michael T. Owyang
currency crisis can be defined as a speculative attack on a country’s currency that can result in a forced devaluation and possible debt default. One example of a currency crisis occurred in Russia in 1998 and led to the devaluation of the ruble and the default on public and private debt.1 Currency crises such as Russia’s are often thought to emerge from a variety of economic conditions, such as large deficits and low foreign reserves. They sometimes appear to be triggered by similar crises nearby, although the spillover from these contagious crises does not infect all neighboring economies—only those vulnerable to a crisis themselves. In this paper, we examine the conditions under which an economy can become vulnerable to a currency crisis. We review three models of currency crises, paying particular attention to the events leading up to a speculative attack, including expectations of possible fiscal and monetary responses to impending crises. Specifically, we discuss the symptoms exhibited by Russia prior to the devaluation of the ruble. In addition, we review the measures that were undertaken to avoid the crisis and explain why those steps may have, in fact, hastened the devaluation. The following section reviews the three generations of currency crisis models and summarizes the conditions under which a country becomes vulnerable to speculative attack. The third......

...The Russian Ruble Crisis of 1998 is termed as among the worst financial crisis to hit the Russian economy. The Crisis is believed to have been triggered by a number of factors. The Asian financial crisis of 1997 is a major cause of the crisis as it led to declines in the world commodity prices (Owyang, & Chiodo 2002, p. 7). Just to be appreciated is the fact that Russian economy was heavily dependent on oil. There are other reasons such as the downfall of the Soviet Union in 1991 and the economic difficulties it brought to the Russian nation. Another common cited reason is poor financial policy practices by the Russian government as well as political crisis that were witnessed in the nation earlier that year (Owyang, & Chiodo 2002, p. 7). The Russian financial crisis had various political and economic consequences.
First, the crisis compromised the confidence of the citizens of Russian to the government of president Yeltsin. Indeed, facing much opposition in the parliament, Yeltsin was forced to fire Kiriyenko as the prime minister and nominated Foreign Minister Yevgeny Primakov to the position (Tarassova, Kraakman, & Black 2000, p. 12). On the economic front, the Russian crisis led to the collapsing of the Russian stock, bond, and currency market on august 13, 1998. This was a direct result of investors fear that the government could devalue the ruble as well as claims of failure by the government to repay its domestic debts. This paper gives a critical analysis...

...The Global Financial Crisis
Introduction
The global financial crisis which started in early 2007 has proven to be perhaps the great financial catastrophe in history. Although it traces its roots back to the starting of the millennia, the subsequent meltdown was most gruesome over the past 3 years. What began as a crisis of the sub-prime mortgage market in the United States quickly transcended national borders and developed into a upheaval of epic proportions. What ensued was a systematic debacle of stock exchanges, investment banking, derivatives etc. all financial markets ranging from equity, currency, real estate, futures etc.
In order to fully understand the devastation caused by this dilemma, we have to take focus on the core issues and identify the stream of events as they occurred and how they subsequently collapsed global financial markets.
Housing Bubble Burst
The global financial crisis began through the US sub-prime mortgage market. The past two decades leading up to the year 2005 had experienced phenomenal growth in terms of increases in housing prices. There was an abundance of capital flowing into the country and this translated into excess liquidity available for banks to lend out. The Sub-Prime Mortgage Market refers to a market where people with bad credit history can obtain house loans at relatively better rates. It doesn’t imply that the interest rates are low, but rather they don’t have to go through the rigors they would face due to their poor......

...Fakultet:Ekonomski nauki –Strumica
Financial Crisis
-esej-
Predmet:Angliski jazik 1 Izrabotil:
Profesor:Natka Jankova Elena Garvanlieva
Indeks: 9532
Strumica,dekemvri 2012
Throughout the history and even today we often hear about the term financial crisis. Every day on the news we can hear about the financial crisis in some countries and how they are trying to prevent it or to get out of it. Especially about the financial crisis in Greece. So what exactly is financial crisis?
There have been a lot of definition of what financial crisis is, but they all agree in one thing financial crisis appears when some institution or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crisis include stock market crashes and the bursting of other financial bubbles, currency crises and sovereign defaults. There a lot of types of financial crisis: banking crisis, speculative bubbles and crushes, wilder economic crisis and other crisis. But from all of them, today the most frequent financial crisis is the banking......

...FINANCIAL CRISIS: WHERE DID RISK
MANAGEMENT FAIL?
Gabriele Sabato
Royal Bank of Scotland1
Abstract
The real estate market bubble and the subprime mortgages have been often identified
as the causes of the current financial crisis, but this is not entirely true or, at least, they
cannot be considered as the main cause. A poor regulatory framework based on the belief
that banks could be trusted to regulate themselves is among the main sources of the crisis. At
the same time, risk management at most banking institutions has failed to enforce the basic
rules for a safe business: i.e., avoid strong concentrations and minimize volatility of returns.
The purpose of this study is to identify the reasons behind the risk management failure and
offer a view on how they can be solved or improved going forward if we want to ensure a
sounder financial system than today’s one. In particular, I examine the following issues: 1)
lack of a defined capital allocation strategy, 2) disaggregated vision of risks and 3)
inappropriate risk governance structure.
JEL classification: G21; G28
Keywords: Financial crisis; Capital allocation; Enterprise risk management; Banks’
governance structure
1 The material and the opinions presented and expressed in this article are those of the author and do
not necessarily reflect views of Royal Bank of Scotland. E-mail address: gabriele.sabato@rbs.com
Tel.: +31 6 51 39 99 07. Address: Group Credit Risk, Paasheuvelweg 25, (BT3345),......

...Economic Research Paper
April 18, 2010
After two years after the financial crisis of 2008, the Congress is ready to step up and start implanting a new plan. The Senate Banking Chairman, Christopher Dodd, released the Restoring American Financial Stability Act of 2010 on March 15th 2010. This bill includes the revisions to the bill Dobb presented to the Senate in November of 2009. Some of the bill was improvements to The “Schumer Bill”, The Shareholder Bill of Rights, which was proposed by Senator Charles Schumer. Some things that The Shareholder Bill of Rights highlights is that the bill would put executive compensation into effect, shareholders will have the opportunity to reelect every single board member at the table, instilling independent directors to oversee each company's risk management practices are just some of the highlights. One of the differences is that the Dodd Bill leaves out things that should be left to state regulation rather than United States Regulation. The American Financial Stability Act of 2010 will create a new agency just for financial products and services, it will transform the derivatives markets that will make our economy come out of the crisis and more stable for the years to come.
Some thought that the reason why Dodd released the bill when he did was to cause a debate with the Republicans in the Senate. Dodd, who is a Democrat, which caused many Republications, opposed the new bill. As of April 18, 2010, every single......

...The exploding of financial crisis in south East Asia, starting with the floating of the Thai baht in July 1997 has attracted heated debate on the causes and effects of the financial crisis and the appropriate and necessary responses at national and international level. My focus will be based on Singapore. Singapore has a very open economy both in current and capital accounts. The impact of financial crisis in Singapore have not been that severe due to the strong macroeconomic fundamentals, policies, healthy financial domestic system and political stability.
With the increased globalization and rising international capital flows, the determination of an appropriate monetary policy by countries with small economies have become more complex. An example of this country is Singapore. The government of Singapore has been faced by the challenge of evaluating the different economic developments which are vital in the short run and also assessing the different trade-offs among policy objectives. Identification of the key constraints on the operating regime and assessing the necessary degree of monetary policy transparency has really been a problem to the government.
Based on this context, Singapore has been trying to adopt a unique monetary framework centered on managing the rate of exchange and promoting price stability to ensure sustainable economic growth. The monetary policies in Singapore are enacted by the Monetary Authority of Singapore (MAS). This body has time to time......

...thanks to the falling oil prices from 120$ a barrel to 50$ a barrel hitting it with irrevocable losses.
Political Russia’s market and leaders who are new to the free capital markets have largely worked on inflation target and used most of its disposable income generated from exports to accumulate currencies of different nations rather than reinvesting in the economic diversification to substantiate the long-term economic because of the leaders political interest and the central banks inexperience to assess the credit risk in commercial lending unlike USA
To recover immediately Russia can offer high interest rates to regain the credibility from the corporates or at least stop them from moving out but this can happen only through few financial restrictions which would in turn push the nation’s growth several years back. But if Russia allows the floating inflation rate to prevail most of the corporates would move out as there would be no consumer market for costly goods and it can invest in its mid-size and small size manufacturing facilities and subsidize the equipment cost initially through stringent banking norms which would diversify the economy and reduce the dependency on oil and metal exports rather than trying to regulate the inflation rate by selling the existing gold...

...Financial Crisis
Introduction
In recent decades, financial crises have stopped the momentum of economic development of many countries around the world. In some cases, they have destroyed almost completely different financial systems. The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy. Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time. The purpose of this study is to analyze the causes of financial crisis, the types of financial crisis and the impact caused in the countries that have experienced them.
Explanation of financial crisis
Financial crises have come in many forms although they have many common elements. A financial crisis is often associated with one or more of the following phenomena: substantial changes in credit volume and asset prices, severe disruptions in financial intermediation......

...Lloyd Spooner
Money & Banking
Professor Rothbort
April 3, 2016
THE GFC AND ITS AFFECTS
The Global Financial Crisis was caused because of yield seeking entities who took speculative positions via derivatives on mortgages, but didn't own the underlying bonds. The shock happened because when the housing market went south, the people who shorted housing were due to be paid a lot, and the banks were overexposed to cover those losses. The Fed Reserve's role was to utilize monetary policy to ensure liquidity in this credit crisis, when banks were cash strapped. Thus, they lowered interest rates. We also saw capital flows into the US economy in the form of sovereign wealth funds helping to infuse capital into banks like Merrill Lynch and Citi.
Furthermore, one should be cautiously optimistic about the current state of the economy. The cautious optimism is evident in the Big Three indicators of the US economy: GDP, Unemployment, and Inflation. As for GDP growth, since 2009, growth has been hovering between around 0 and 5%. However, when considering the changes in government expenditures, whenever the government’s spending decreased, real private investment and residential investments decreased as well. As for unemployment, although the Unemployment rate has been trending downward, and now averaging 5% for the first time since 2008, the US Economy demonstrates that the changes in nonfarm employment has been drastically decreasing. So unemployment numbers look better......

...Journal of Contemporary Eastern Asia
ISSN 2383-9449
Fumitaka Furuoka, Beatrice Lim, Catherine Jikunan and Lo May Chiun (2012)
Economics Crisis and Response:
Case Study of Malaysia’s Responses to Asian Financial Crisis
Journal of Contemporary Eastern Asia Vol. 11, No. 1: 43-56
Journal abbreviation: J. Contemp. East. Asia
Stable URL: http://eastasia.yu.ac.kr/documents/Fumitaka_11_1.pdf
www.JCEA-Online.net
Open Access Publication
Creative Commons License Deed
Attribution-No Derivative Works 3.0
Journal of Contemporary Eastern Asia, Volume 11, No.1: 43-56
http://dx.doi.org/10.17477/jcea.2012.11.1.043
Economics Crisis and Response:
Case Study of Malaysia’s Responses to Asian Financial Crisis
Fumitaka Furuoka, Beatrice Lim, Catherine Jikunan and Lo May Chiun
The paper chooses the “Asian Financial Crisis” as a case study to examine its impact on Malaysian economy and describes how Malaysian government responded to the crisis. It also focuses
on the Asian financial crisis’ impact on the employment of banking sector in Malaysia. In the
finance, insurance, real estate and business service sector, a number of 6,596 workers were retrenched. Banks were forced into mergers and acquisition as well as downsizing, trim lean, organizational changes and introduction of new technologies. Excess workers were offered a “voluntary separation scheme.” These retrenched workers became the urban poor facing high cost of
living and no opportunity for jobs as there is no safety net provided.
1.......

...Introduction:
The purpose of this report is to consider The Russian Crisis of 1998. What events led to this crisis, how it affected ordinary citizens and the effect it had on the world capital markets. We will also discuss the role IMF and other countries played in helping with the crisis. What the Russian government did in order to stabiles the situation and what role politics played in the process. We will use a number of sources in order to complete this report.
Question One: What event is recognised as the beginning of the crisis?
The Russian crisis begun on August 17th 1998 when the central bank of Russia announced that it would widen the intervention bands from ruble. It meant that the ruble was allowed to fluctuate against dollar. As a result, the exchange rate of the ruble fell steadily which led to a collapse in Russia economy. However, the crisis was not caused by a single event. It was a consequence of a continuing downward trend in Russia economy since its economic reform in 1991. The crisis’s seeds were sown from that day. The main causes of this crisis could be divided into 3 timelines:
* Period 1991 – 1996:
In 1991, Russia changed from a very strictly centralized economy to a market economy. Up until then, the Soviet played the most important role in subside all the state sectors. It consumed one-third of GDP and supported at least every third man, woman, and child (Roman, G & Robin, M – 1999). When the real prices were introduced, these state......

...The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.[1][2] Financial crises directly result in a loss of paper wealth; they do not directly result in changes in the real economy unless a recession or depression follows.
Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus, however, and financial crises are still a regular occurrence around the world.
Banking crisis
Main article: Bank run
When a bank suffers a sudden rush of withdrawals by depositors, this is called a bank run. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run may leave the bank in bankruptcy, causing many depositors to lose their savings unless they are covered by deposit insurance. A situation in which bank runs are widespread is called a systemic banking crisis or just a banking panic. A situation without widespread bank runs, but in which banks are reluctant to......